Sunday, August 16, 2009

More On Health Care Reform/How Really to Lower Health Care Costs

Over at Conglomerate, Gordon Smith has posted a thoughtful analysis of the politics and policy of President Obama's health care reform efforts.

Among other things, Smith notes that most Americans are generally happy with the health care they receive. Moreover, despite some initial promises, there is no indication that the plans promoted by President Obama and his allies will improve the amount or quality of care that most Americans receive. Instead, Smith suggests, providing health insurance for 45 million additional Americans will only increase the cost that everyone else pays for health care, and perhaps reduce its quality. (I'll add here that it will increase cost in two ways: first, it will increase the demand for health care services (according to some sources the uninsured currently receive 50-60 percent of the care received by others), without any increase in the supply of health care, thus driving up the price of such services. ("Where are the additional doctors ?" Smith asks.) Second, it will increase expenditures, by the government and the private sector, on health care, hence the $1 trillion (minimum) price tag of the proposals in the Congress., and that is just the price tag for the national government.) Smith concludes that, unless the Democrats can convince Americans that that their plans will actually improve their health care and/or lower the price they pay for it, no ambitious plan will actually pass Congress.

I certainly agree with Smith's cogent analysis of both the policy issues and the politics of health care reform. I will also add that President Obama is missing a real opportunity here. There may in fact be a way to BOTH increase access to health care (certainly an important policy objective) AND reduce costs, but no one is talking about it. That is, the government could take various steps to reduce the costs of producing and financing health care, shifting the supply curve of such services so that, despite increased demand for care, prices might actually fall. Or, at least such steps could mitigate any price increase that would otherwise result from increasing health care expenditures on the 45 million or so individuals who are not insured.

Here are the sort of steps that I have in mind:

1) Increase the number of doctors educated here in the USA. The government could require states, as a condition of receiving Medicaid funds for instance, to increase the size of their medical schools, thus increasing the supply of physicians.

2) Relax immigration restrictions. Such restrictions prevent foreign-educated doctors from becoming U.S. citizens or prevent American-educated citizens of foreign countries from remaining in the USA. A growing number of Americans are travelling abroad, e.g., to India, for surgery. Why not bring the Indian doctors here, instead, thereby increasing the supply of physicians, as Smith seems to suggest?

3) Eliminate so-called "certificate of need" laws that prevent entry by hopsitals into underserved markets. Most states have such laws, which require individuals to obtain a state's approval before building a new hospital. According to one report, New York was the first state to adopt such laws, in 1964, and numerous other states followed suit at the behest of the American Hospital Association. Here's the report, from the National Conference of State Legislatures. The Department of Justice and the Federal Trade Commission have criticized such laws, pointing out that they increase concentration in health care markets, reduce competition and drive up prices. The national legislature has the authority to preempt such laws, so long as they burden interstate commerce, which many of them do. Moreover, Congress could also decline to provide, say, Medicaid subsidies to states that maintain such laws.

4) Reform the McCarran-Ferguson Act. As explained in a previous post, the McCarran-Ferguson Act exempts health insurance companies from the sort of antitrust regulation that other companies live under, whenever states regulate or purport to regulate such companies themselves. McCarran-Ferguson also allows states to block out of state insurance companies from entering their markets. Both provisions, of course, naturally raise economic concentration in local health insurance markets and thus likely raise the price of health insurance.

So far as I can tell, none of the bills currently in play in the House or Senate includes any of the measures listed above. If the President and members of Congress really want to take on "special interests," why not take on the American Hospital Association and the AMA by attempting to preempt certificate of need laws and significantly increase the number of doctors? The failure to do so is perplexing.

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Bishop James Madison, the cousin of our nation's fourth President, was the President of the College of William and Mary from 1777 until his death in 1812. Prior to appointment as President, Madison served as a professor of natural philosophy and mathematics. During the Revolutionary War, Madison organized a militia company of students. William and Mary claims that Madison was the first professor of Political Economy in the United States. His lectures on the subject relied upon Adam Smith's Wealth of Nations, published in 1776. Along with Thomas Jefferson, Madison was instrumental in founding the School of Law at William and Mary, appointing George Wythe as William and Mary's first Professor of Law and Police.